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Saturday, February 20, 2016

The big issue no one is talking about

Of all the threats to America, the biggest issue is an internal one. In the past, I thought it was the poor that were absorbing the majority of government spending however a quick look at total government spending shows that Social Security and Medicare account for almost half of government spending. Currently, the United States has total unfunded liabilities of $100 trillion. Unfunded liabilities are promises to current citizens which will come due in the future. These include Medicare, Social Security, debt held by the public, and a few other items.

These are unfunded liabilities because we don't yet have the money to pay for these promises.

To put things into perspective, the total gross domestic product of the United States is only $18 trillion. The $18 trillion per year includes all of the production for the entire United States for just one year. Our current unfunded liabilities is 5.56 times our GDP.

With more and more of the baby boomers retiring and the millennial generation struggling to get decent employment, it is possible (if not already the case) that the unfunded liabilities will grow at a faster rate than GDP which leads to a situation where the unfunded liabilities can never be completely paid off.

This is how the economy will collapse if changes aren't made.

The federal government admits this. Every social security statement has the clause that by the year 2020 or 2030, social security will only be able to pay out 75% of the benefits it promised.

So, what is most likely going to happen?

1. Benefits will have to be cut in some way. In a sense, this is already happening. The government could just pay out a fraction of what it promised or just break the promise all together. A lot of people will fight tooth and nail against it and this is the reason why politicians never touch the issue. Threatening to strip the program is akin to political suicide. If benefits do get cut, the government would most likely grandfather in the older generation and strip the benefits away from the youth while still requiring the young to pay for the old. This is why the retirement age for my generation is 67 instead of 65 however the government will say it is because people are living longer.

2. Increase the FICA tax. This is hard for politicians to do because raising taxes is akin to political suicide. It is from FICA where the funding comes from. This also has the negative effect in that raising taxes on the average worker will hinder or destroy economic growth and may increase the dependence on other government programs.

3. Print more money. The government promised a number of dollars it would pay to social security recipients. It never made any promises on how much that money would be worth. Since this is a gradual solution and Americans slowly adapt to a lousier standard of living over time, I believe this is the most likely or used method.

People ask me why I buy gold and silver. People ask my why I want to buy guns and ammo. People ask me why I want to buy land in the middle of nowhere and learn how to grow potatoes. This is why.



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